2022 (8) TMI 1023 - AT - Income Tax

Estimation of net profit - estimation of assessee turnover - Assessing Officer s estimation of net profit rate at 8% - HELD THAT - As in applying the net profit rate of 8%, arbitrarily and illegally ignored the history of net profit rates of the assessee himself. Undisputedly, in the immediately preceding assessment year 2013 14, the assessee s case stands assessed in scrutiny assessment under section 143(3) of the I.T. Act, at a net profit rate of 0.172%, which has been accepted by the assessee. The Assessing Officer s order was thus a result of complete non-reading of material documentary evidence in the shape of comparable case of the assessee s own assessment order for assessment year 2013 14, non-applicability of res judicata to the income tax proceedings notwithstanding. It goes without saying that where the books of account have been rejected, the history of the case, of both earlier as well as succeeding assessment years, becomes the most relevant criterion for estimation of income. The transactions for assessment year 2013 14 having not been found to be a sham or malafide, the ld. CIT(A) has correctly applied that year s net profit rate of 0.172% to the year under consideration. CIT(A) has duly taken into consideration the afore-discussed shortcomings in the assessment order. It cannot, as such, be said that the ld. CIT(A) did not give any reasonable cause for deleting the addition, or that he did not point out any discrepancy in the view expressed by the Assessing Officer in his order. - Decided against revenue.

Summary

Issues:
1. Addition of Rs.6,67,79,794 - Res Judicata principle in Income Tax Proceedings
2. Deletion of addition made by Assessing Officer without reasonable cause
3. Denial of opportunity to Assessing Officer to present views

Analysis:

Issue 1: Addition of Rs.6,67,79,794 - Res Judicata principle
The appellant challenged the deletion of the addition of Rs.6,67,79,794 by the ld. CIT(A), arguing that the principle of res judicata does not apply in Income Tax Proceedings. The Department contended that the deletion was erroneous. However, the ld. CIT(A) found that the difference in bank deposits was unexplained, leading to an estimated turnover of Rs.77,54,34,044. The appellant's argument was supported by the history of the assessee's turnover and net profit rate from the previous assessment year, which the Assessing Officer failed to consider. The Tribunal upheld the CIT(A)'s decision, stating that the findings were well-versed and devoid of any infirmity.

Issue 2: Deletion of addition by Assessing Officer
The Assessing Officer had added the credits in the bank accounts to arrive at a turnover of Rs.84,45,27,044 and applied an 8% net profit rate. However, the CIT(A) noted that certain credits were already included in the turnover and found unexplained credits of Rs.1,54,29,442, leading to an estimated turnover of Rs.77,54,34,044. The Tribunal highlighted that the Assessing Officer failed to provide the appellant with an opportunity to rebut the Inspector's Report, violating the principle of natural justice. The CIT(A) considered the history of the appellant's net profit rates from the previous year and correctly applied the net profit rate of 0.172% for the current year.

Issue 3: Denial of opportunity to Assessing Officer
The Department argued that the Assessing Officer was not given a reasonable opportunity to present views, leading to the deletion of the addition. However, the Tribunal found that the CIT(A) had adequately addressed the shortcomings in the assessment order and provided valid reasons for the deletion. The Tribunal rejected the Department's grounds, upholding the CIT(A)'s findings as well-founded and free from any defects.

In conclusion, the Tribunal dismissed the appeal, affirming the CIT(A)'s decision based on a thorough analysis of the issues raised and the relevant legal principles applied.